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Our Secret Stash of Oil

An intricate pipeline system connects the storage caverns at the Strategic Petroleum Reserve site on Bryan Mound. (Credit: F. Carter Smith/Polaris, for The New York Times)

Last week, in his State of the Union address, President Bush proposed to spend $65 billion from the government’s general fund to double the size of the Strategic Petroleum Reserve. For most Americans, the reserve, where 700 million barrels of oil have been stored since the late 1970s, is mostly an article of faith: Few know that it’s located deep underground in four sites on the Gulf Coast, and because those sites are considered vital to national security, hardly anyone has seen it. But it’s time to take a closer look at the reserve’s purpose, its usefulness and its cost. Before we invest another $65 billion in this underground bank of oil, we should ask ourselves what we’re really getting for the money.

Though the Strategic Petroleum Reserve is remote and not open to the public, I toured the largest of the sites, Bryan Mound, located in Texas, in the summer of 2003. Except for the security fences and sunburned young men carrying guns, it was a friendly place — balmy waterfront scrub overrun by migratory birds, and the occasional alligator or bobcat. The oil sits far out of sight, some 2000 feet below ground, in caverns in thick salt deposits.

The caverns are made by a technique called “solution mining,” which basically involves running water down into the salt and sucking out saltwater until a significant hole has been hollowed. The salt wraps itself around the oil like plastic, so the caverns don’t leak. They are, in fact, a miracle of salt engineering, and if it were possible to see them, they’d probably be as big a tourist draw as the Hoover Dam. But the petroleum reserve is pretty much invisible — and so is its ambiguous history.

The reserve was established in 1975, after the first Arab oil embargo cut exports to the United States, as a way to fight back against any future threats to our energy supply. Some called the reserve our own “oil weapon.” By the time it was completed in the early 1980s, however, embargoes were no longer a threat. Significant amounts of oil were being traded on the open market, so oil producers could no longer control who bought their oil.

Then the Strategic Petroleum Reserve gained a second life as an insurance policy against oil shortages and high prices. During the 1991 gulf war, the reserve stood by ready to pour more oil into the market in the event the conflict paralyzed production in the Persian Gulf. By allaying fears of a shortage, it theoretically could keep oil prices from spiking.

In this role, the reserve became the center of a new debate over the American government’s role in the oil market. Should it regulate prices? Or stand by only for emergencies? “That’s the S.P.R.’s Achilles heel,” Sarah Emerson, an analyst at Boston’s Energy Security Analysis, Inc, told me. “Its role changes depending on who’s in office.”

Since the election of George W. Bush, administration officials have resisted using the reserve at all. At the start of the Iraq war, rather than tap into the reserve, the Bush administration asked Saudi Arabia to pledge to put an extra 2.5 million barrels of oil a day on the market, if needed. Ironically, the reserve had been created to free the United States from the influence of foreign oil producers, but our unwillingness to use it created a new type of dependency.

Just this week, Saudi Arabia indicated that it will work to keep oil prices lower, at least in part to further American diplomatic goals with Iran. And this raises a new question about the reserve: If we didn’t use it in 2003, when it might have come in handy, will we be any more likely to use it once we’ve made it twice as big?

My sense is that the Strategic Petroleum Reserve is more important as a psychological aid (like the stashes of food survivalists keep in case of catastrophe) than as a practical solution to energy security. In many ways, it is a relic of cold-war thinking that lives on even though the very idea of energy security has changed. We now import about a million barrels of oil a day in the form of goods from China. That is, China imports the oil, uses it to make products, and we depend upon those products. The reserve can do little to protect us in this more complicated modern world. If we double the size of the reserve, we will be paying $65 billion for more of the same psychological reassurance, and little else.

The president’s current doubling plan would keep the entire reserve on the Gulf Coast, which means we would go from having all our eggs in one basket to having paid for twice as many eggs and put them all in the same, hurricane-prone basket.

But perhaps the biggest problem with the reserve is that its costs never appear at the pump. The United States spends about 2 billion dollars a year maintaining the reserve, and billions more filling it, but because the money comes from the general fund, rather than from a “security tax” on gasoline, those costs are hidden from the consumer.

The reserve is only a small part of the larger story of hidden gasoline costs in the United States. For the last 100 years, the government has used money from the general fund to subsidize energy to keep it as cheap as possible for Americans, ostensibly to encourage economic growth. Now those hidden costs – which include tax breaks for the oil industry, accounting giveaways, direct subsidies for some oil and gas production and the cost of protecting oil and natural gas shipping lanes – may total around $39 billion a year, according to Doug Koplow, who studies energy subsidies for Boston-based Earth Track.

While many Americans feel that current gas prices are high, they are in fact much lower than they would be if we counted in the costs of these subsidies, including the cost of maintaining the reserve. We receive an unitemized bill for the subsidies when we pay our taxes on April 15, but we never see any sign of them at the pump. Deceptively low gas prices discourage conservation, making Americans more vulnerable to supply disruptions of all sorts. You could even argue that this policy, which encourages Americans to produce 45 percent of the world’s carbon dioxide from auto emissions (even though we own only a third of the cars), is speeding global warming and making hurricanes more likely to swamp the refineries, oil installations and petroleum reserve sites on the Gulf Coast.

Any way you look at it, we need to stop subsidizing supply and start managing energy demand. But even if we determine that we need more oil, or gasoline, in the reserve, we should at least pay for it with a 5- or 10-cent-per-gallon tax on gasoline.

What is the cost of gas INCLUDING all the hidden help it gets from the government? Let’s make it known and then fund superior promotion of electric vehicles recharged with sustainables like wind or solar photo voltaic cells. This will be to our nation’s advantage for politics, economy and the enviornment.

The increase in the size of the SPR has negative consequences beyond what Ms.Margonelli notes: it drives up the cost of oil, at least i the short term, and further increases government’s ability to manipulate the market. See more at factsonenergy.org (january 25)

So our government wants to spend $2.7 billion a year for 20 years buying oil, thus driving up oil prices and worsening our trade deficit, in order to pour it into a hole in the ground? What if we took that same $2.7 billion a year and gave a $5400 cash credit toward the purchase of any car that got 40+ miles per gallon? This would facilitate the purchase of 500,000 cars a year and should produce the following effects:
A net saving of about 7 barrels of oil per purchased car per year, or 3.5 million barrels in the first year, and 70 million barrels a year in the 20th year (although I don’t believe anyone can make valid economic projections 20 years out!). While some might say that this is only a drop in the barrel, the plan could easily be quadrupled (see below).
A stimulus to our ailing domestic auto industry, as the credit would be sufficient for a downpayment, taxes, tag and fees, and the gas savings would offset any higher car payment.
A perception by the citizenry that tax revenues were actually benefiting ordinary Americans, while furthering our goal of Energy Independence.
A perception by world energy markets that the US was serious about reducing dependency on foreign oil, rather than buying more, especially if (and I feel that this is a vital component) the US imposed a varying tax on gasoline to maintain a price of $2.50 (or more) a gallon at the pump. We have already seen that $2.50 gas does not impact our economic performance, and the additional tax should be rebated in full (to a 12,000 mile per year limit) to private owners of 40+ MPG cars, thus giving an additional incentive to the plan. World oil prices should fall somewhat, producing extra tax revenue. The fixed floor price of gas would dampen price shocks, allow better economic planning, and dissuade those hoping for lower gas prices for their SUVs. A mere 10 cents a gallon net additional tax revenue would generate about $12 billion a year, allowing a quadrupling of the plan, if carmakers could keep up.
An important aspect of this plan is that, should there be an oil crisis, the existing pertroleum reserve would not be depleted at the current projected rate. The reserve would have almost the projected consumption capacity as under the Bush plan, with the advantage that this plan would be based on real and measurable consumption changes, which could be adjusted, rather than on theoretical outcomes. Indeed, in the last years of this plan, the oil savings would exceed the annual deposits into the reserve under the Bush plan, allowing the reserve to be topped up without additional demand on world oil supplies.

my concern, when first hearing the president recommend this in his sotu address, was another indication of his already-planned, future invasion of iran and it’s expected interruption of the oil supply.

My idea is to go to variable gasoline pricing determined at the pump and based on the vehicle. Vehicle registration could easily include a “SmartCard” which would be read at the gas pump and automatically calculate the appropriate amunt of tax that should be added to the price. The more gas a car uses, or the more polution that the car puts into the air would raise the applied tax.

Since each card culd be identified witht he car and owner an incentive program could be developed to encourage people to scrap their old gas guzzling, polution generatin car. In fact, in the case of people that are poverty stricken, the vehicle id card could issue credits to reduce the price for a maximum number of gallons per month. At the same time some accumulation of tax could be applied to assist the person to get outh of their older car.

California has a program where if you have an older high poluting car they will pay you to take it off the road and scrap it. These are the kind of things that need to be done to address the oil issues. Increasing the SPR sounds good but will be significant only when we have oil cutoff and we need to meet military needs. IMO, this increase is targeted towards making it easier for some future president to engage the middle east (since the current bozos in charge have made such a mess of it).

One other thing is that there is a declining marginal utility for each additional barrel of fill, as the likelihood of using a small amount is much greater than the likelihood of using a larger amount. Yet, the costs of fill are nearly constant. It seems likely that this decision for additional fill did not take into account a cost-benefit analysis, which I would think, given the current size of the SPR already and the history of very small releases, would indicate that this decision to increase the size does not make sense.

As one previous comment notes, it does, eventually, give the President more freedom to choose a foreign policy that could bring about a long shut-off of exports from a major exporter (e.g. Iran). There is a legitimate purpose in the SPR freeing the U.S. and other countries from oil blackmail and allowing for a freer foreign policy. But, how much should the public pay (and it is only the U.S. public, all others are free riders except for the increase in the price of crude) to allow for a foreign policy that permits what some might consider adventurism? At a certain point, trying to ensure complete freedom from concern about oil market repercussions of a foreign policy is simply not worth the price. The current fill of 700 million barrels gives plenty of freedom of foreign policy choice already. Imagine the benefits to U.S. security of spending some of those $ billions now to be spent on additional fill instead on foreign aid (soft power) that helps the world’s poor – probably smarter in the long run, better for the environment, and an ethically superior choice.

As the article states, we have rarely tapped the SPR.
The unstated reason for doubling the SPR is the final payoff to W’s oil company pals, from the Middle East to Houston.
As Deep Throat once advised us, “follow the money!”

What about Elk Hills in central California, adjacent to the Camp Roberts National Guard facility? I had always been told that Elk Hills was part of the strategic national petroleum reserve. It is still appears to be producing some oil, but perhaps as an older government production facility and not a storage facility, it is not “secret,” or technically part of this oil reserve.

I ahould also state that I share much of the skepticism, suspicion, and cynicism posted here with regard to this move by Bush. Too much of the information about our nation’s policies and direction are shrouded in Bush Administration double speak and mystery.

I really can’t opine too much about any of this oil business crapola since it is such a scam and absolutely nothing that the american public says or does,short of storming the capitol in mass and dragging these idiots out by there heels to the nearest yard arm, seems to make one bit of difference as to how things actually happen.
I wonder if americans understand that they have been somehow turned into a not so well run dictatorship of fools and ,in spite of the low numbers at the opinion polls over every aspect of their rule ,they still rule with an absolute iron hand doing as they wish, much like one of those inbred semi-retarded kings in old europe, and they do not give an inch to anybody on anything,period.
The MAN is completely unstoppable as he continues to prove over and over and over.It’s nothing short of amazing,Nixon and Clinton were both almost brought to their knees by far more trivial,almost funny in Clintons case, actions in comparison to the almost absurd behaviour of this band of arrogant showoffs.
As a final note,the americans have nobody to blame but themselves,unfortunately their redundancy and ignorance compounded by an almost complete lack of decent or real news coverage only makes it more difficult for the rest of the people on planet earth.Just where are all the hard hitting journalists ,you remember,the ones that were nailbiting us into a bunch of twittering schoolgirls over Mr.Clintons moronic actions with Miss Monica? Like I said ,it’s just amazing.

We need to offer incentives to remove oil dependency. This article is valuable, as it focuses on transportation, but what about the extreme lack of efficient heating & cooling systems for buildings? The average lifespan of a building in the US is 7 years! That is unacceptable. Today there are slim options for efficient oil furnaces. President Bush should offer incentives to manufacturers to develop highly efficient residential and commercial units. No one is talking about the inefficient building practices in the United States or the overdevelopment of the world in general. Instead we continue to focus on electric cars, emmisions are a symptom – not the direct cause. Less development, more affordable housing and local job creation allows for less daily travel and less oil usage…hence the statistic in the article about our exhuast vs. our car ownership. American sprawl leads to inefficient energy consumption – fix the cause and the effects will be beautiful. People should not be commuting hours to their job becuase they can not afford local housing or are scared to live in the places that are local to them. Our systems are not logical. Everything is connected, but some things are more important. Americans are reducing their quality of life and increasing inefficient habits through their decisions, decisions that seem logical on the surface but are illogical in reality. We must, as a people, come together and make things easier on ourselves. And these issues, oil dependancy being one, will work themselves out…

Rod King and Tom Mehrens both have excellent ideas–I love the tax credit for 40+ MPG cars-we have many auto workers who need work in my hometown–we could really use a stimulus in that industry.

As it relates to Gasoline…having more oil in the ground won’t really help regular folks, because refining capacity in this country is maxxed out. Even without damage to our refineries in a time of emergency, we can only produce a limited quanity of refined product. We use all that we refine. Also that ability to refine changes with whatever is stored underground. Ships bringing refined products to the US will always be needed even in peaceful times, unless we as a country apply a technology-based strategy to really be independent.

Right now they are wringing every last dime out of outdated refineries, and outdated technology….the gov’t can pour oil and $$$ into the ground to apply duct tape to our situation, or we can motivate entrepreneurs to help create the next energy economy while this one hobbles along, constrained by capacity and political unrest, and continuing to create pollution problems.

that the administratuion has used the strategic petroluem reserve to “game” the market. i.e. cause gasoline prices to go down right before elections and up afterwards and that the recent increase in the strategic reserve gives the Bush team more leverage to see the price of gasoline rise.

Can you imagine what we could do to the Gulf Coast, including the oil mechanisms there if we were to put $65 billion into its recovery? Can you imagine the education and scientific advances $65 billion might achieve to explore efficient engines and alternative modes of transportation? Can you imagine the number of kids achieving a useful and productive 2 or 4 year college education with $65 billion? Why can we imagine these things and yet Bush and Co. cannot imagine anything. nothing. they rehash already debunked fodder but do not think of anything new. Please wake up Bush.

It continually amazes me how uninformed and silly the liberal oriented media and some of the public readers can be. Before some supposedly informed person writes an article one would think they would do enough research (or simply make a phone call to some engineer) to learn that gasoline deteriorates when stored over time, and relatively not much time. Crude does not.

If we need the Reserve for any of the reasons it was created, as well as several more that are obvious, the costs should be covered in taxes (which they are) not added to the taxes on gas at the pump because not only the “drivers” potentially benefit.

I get queasy every time I hear about how much more oil we use per capita than those countries that are about the size of Rhode Island. How about we live in a big country where some people have to drive lots of miles to take care of the natural resources that make this country great. Ever drive across West Texas or North Dakota? But please, do not explain anything, just tell stories out of context and let the gullible and uninformed cuss and fuss.

Personally I already drive a car that gets 35 MPG. So could everyone if they desired. It is a free country, a free market economy. Wonder what type SUV “Rod” drives?

Was anything reported about the actual damage done to the Reserve facilities by Katrina? Wonder why? It is rather difficult to damage an underground facility with a Hurricane as well as most other disasters, natural or otherwise.

Give me a break! What happened to the expectation for the media to report the whole truth? Most of the media now has an enlarged left ear from dragging it on the ground due to the continual lean.

Will someone please do the math on the cost of a stored barrel based on the numbers…I’m getting $92.++ per barrel? Right? If thats correct, it will ultimately be double that cost by the time everybody gets their hands into the deal. The oil companies will then reap obscene profits far beyound Exxon’s recent bottom line once the deal goes down.

What about investing that 2.7 billion in beginning a genuine high-speed intercity rail network and quality commuter rail that runs frequently enough and to enough places to actually be convenient? Yes, it would be a subsidy– but that is only a portion of the subsidy spent on the auto and gas industries, not to mention public highways, and it would have the triple effect of reducing energy consumption and dependence on foreign oil, reducing emissions (therefore ameliorating global warming and contributing more immediately to public health), and providing more affordable transportation options to struggling families. Is anyone really thinking about our true long=term interests?

Thank you, Rich B, #14, for pointing to one of the larger, driving issues that we Americans for some to me incomprehensible reason never want to allow to become part of the public dialogue on this. We are fixated on bandaids, and looking at larger causes that might mean any lifestyle adjustments is taboo (even while anyone making an even average commute would greatly benefit from having that time back).

The variable gas tax is a fine idea, though rather than a smart card it would be better to use an RFID tag in the filler tube with a reader in the pump nozzle. That way no using the card for the Prius (or junker Civic) to fill up the Escalade.

Concerning using the petroleum reserve to influence prices, anybody remember the flack Al Gore took for trying to do so before the 2000 election?